UTI Value Opportunities
This is a bold offering with the flexibility to position across the market cap. The long-term outlook remains intact and hence we retain our positive stance on the fund.
- Analyst Rating: Bronze
- Fund Manager: Vetri Subramaniam and Amit Premchandani
- Category: Equity Value
UTI Value Opportunities (erstwhile UTI Opportunities) witnessed a change in its category and portfolio manager, but despite these changes, the investment strategy remains robust and doesn’t have a material impact on the fund’s prospects. While the fund may court significant volatility at times due to its value bent and increased exposure in the small/mid-cap space, its low fees, deep research, and strong investment team lead us to maintain a Morningstar Analyst Rating of Bronze.
The fund, recently categorised as a value fund, was, since last year, being managed as a flexi-cap fund, as against a previous large-cap bias, through a gradual increase in the allocation to the small/mid-cap space. The fund manager (who took over in February 2017) also started managing the portfolio with a value bent.
The fund house recently merged UTI Multi Cap (shadow-managed by the research team) with UTI Value, as it was a small fund. However, merging both the funds has been least disruptive as 65%-70% of the UTI Multi Cap portfolio overlapped with UTI Value.
The manager follows a mix of top-down and bottom-up approach. The robust investment process favours sectors that have a strong probability of surprising positively on both earnings and operating cash flow growth. While analysing stocks, he follows a barbell strategy and invests in growth companies--even at a premium, if he thinks the valuations are justified and the company has the potential to generate economic value through the cycle. He also pays heed to the relative valuations and looks for potential for mean reversal, focusing mainly on depressed stocks with low ROCE and return on equity.
UTI Mid Cap
A diversified stock-picking portfolio with an eye on well managed mid size companies.. The fund's recent underperformance has tempered our conviction.
- Analyst Rating: Neutral
- Fund Manager: Lalit Nambiar
- Category: Equity Mid Cap
UTI Mid Cap has the backing of UTI’s vast research and excellent stewardship, but we have maintained a cautious approach on the fund, owing to the manager’s short track record, and retained the fund’s Morningstar Analyst Rating of Neutral.
The fund is a diversified mid-cap strategy with a conservative investment style. It has been true to the label "mid-cap fund" by maintaining 65% of its net assets in mid-cap stocks. The fund was merged with UTI Master Value in 2014, and since then it has followed a blended approach with focus on value and growth stocks. The team behind this offering remains one of the most experienced in the industry. Following Anoop Bhaskar's exit in December 2015, it is managed by Lalit Nambiar. Nambiar has a sound track record of more than 23 years in equity research, but he has yet to prove his skills as a portfolio manager.
We believe that the revamp in the equity fund management team, led by Vetri Subramaniam, who joined the fund house in February 2017, will prove beneficial over the long run. He has ensured that all the strategies within the fund house are well differentiated and has reorganised the equity team, aiming to push for style discipline among the managers.
This strategy adopts an uncomplicated process, focusing on quality stocks trading at compelling valuations. He looks for niche businesses that are currently going through a weak phase, while focusing on management's track record, business model, and sustainability. The investment processes give autonomy to the manager to execute his investment strategy within the broad internal and regulatory guidelines.
The fund is well-diversified at the sector and stock levels and refrains from taking highly concentrated bets even on stocks that have done well. The fund's performance is less impressive under Nambiar’s tenure. Despite its lower expense ratio, the fund’s returns have been disappointing.
We need time to build our conviction in this manager.
UTI Equity Fund
The manager is still to establish a long track record, hence, our cautious stance. The manager looks through the cycle for long-term performers.
- Analyst Rating: Neutral
- Fund Manager: Ajay Tyagi
- Category: Equity Multi Cap
UTI Equity Fund, launched in 1992, is one of the oldest funds in the Indian mutual fund industry. There has been a change at the helm. Ajay Tyagi took over as manager in January 2016, following Anoop Baskar’s exit. Tyagi has been with the fund house for the past 18 years. He is an able portfolio manager, and we like his distinctive long-term investment style, which has delivered superior performance for the fund in the past two years.
The fund was historically managed as a large-cap-oriented fund, but with the recent regulatory changes, it was merged with UTI Bluechip, retaining the characteristics of UTI Bluechip, which is a multicap fund. Despite this, the fund continues to position itself in the growth quadrant, with Tyagi following a bottom-up driven approach while picking stocks. His style is driven mainly by quality, growth, and valuation, where quality signifies a high and sustainable return on capital employed, growth by reinvestment of internal cash flows, and valuations determined by consistency in cash flow generation. Relying on relative valuations to make investment decisions, the team prefers stocks that are cheaper than peers' and their historical valuations. They focus on parameters such as enterprise value/earnings before interest, price/equity, price/book, return on assets, and return on equity, but are willing to be flexible with valuations, especially in rising markets.
The fund maintains a diversified portfolio, but in 2016 brought down the number of stocks to about 50, which is still higher than the median count of the category. Despite this, the turnover of about 13%, as of 2017, demonstrates the manager’s patience and conviction in the outcomes of the investment process. Moreover, the restructuring in process and portfolio tweaking have started showing a positive outcome in the fund’s recent performance. The fund displayed phenomenal performance on a year-to-date basis, outperforming 100% of its Morningstar Category peers.
Our conviction in the strategy remains high, underpinned by our confidence in the portfolio manager, and the consistent application of a strong investment process. However, we continue to maintain a cautious stance and would want to closely monitor the fund for a while longer under the new peer set, before we draw our conclusions.
Hence, we retain its Morningstar Analyst Rating of Neutral.
